Forex retention boon for tobacco, cotton farmers

TOBACCO and cotton farmers can now retain 75 percent of the proceeds of their crops in hard currency, up from 60 percent for tobacco farmers and 30 percent for cotton farmers, with manufacturers, those in horticulture and cross-border transporters’ export retention hitting 100 percent, up from 80 percent.

The tourism and hospitality sector also was boosted to 100 percent retention to help these businesses, the hardest hit by international and national lockdowns, recover as quickly as possible.

The export retention threshold for tobacco merchants was raised to 80 percent on the portion of the incremental value addition repatriated into the country and to 100 percent of proceeds from local sales of tobacco through inter-merchant sales.

The Reserve Bank of Zimbabwe moved to make tobacco and cotton more attractive to small-scale growers and thus boost production, with both crops seeing the bulk of their sales in exports.

Manufacturing, horticulture and cross-border transport see a lot more local sales, with exports a smaller fraction, so need to be able to make as much use as possible of what they can earn in exports to minimise their currency purchases.

RBZ Governor Dr John Mangudya, in his Monetary Policy Statement yesterday, given under the theme, “Staying the course” said the financing models for tobacco and cotton required a refinement of the export retention level to increase participation by smallscale growers and to boost tobacco and cotton production in the country.

The crops are some of the country’s major export earners, with tobacco being the second largest single export after gold.

Dr Mangudya said Zimbabwe recorded its highest ever foreign currency receipts of US$9,7 billion in 2021, an increase of 53,5 percent from 2020.

Notably, this performance dwarfs the previous record of US$7,6 billion recorded in 2013 as the Second Republic’s economic growth push sends exports soaring.

“Accordingly, the retention threshold for tobacco and cotton growers shall be increased to 75 percent for the forthcoming tobacco and cotton marketing seasons. The funds retained by the growers shall continue to be treated as free funds,” he said.

Zimbabwe Farmers’ Union executive director, Mr Paul Zacharia, said the increase was a welcome development for farmers as it was coming from a low base.

“The increase is good and it ensures that farmers are retaining more money (in hard currency), even though farmers would have wanted more, this is a move in the right direction,” he said.

He said the move meant value would be preserved for farmers and that was one way of ensuring grower viability.

“So we are very grateful for the steps that have been made for both tobacco and cotton.
Cotton farmers are going to be paid US$30 per 250kg delivered, which is a good strategy to ensure grower viability,” he said.

Zimbabwe Tobacco Association chief executive officer, Rodney Ambrose, said whilst the tobacco farmers appreciated the increase in their amount of forex they can retain after selling their crop from 60 to 75 percent, it remained lower than the 82 percent the farmers had requested in their submissions to the RBZ.

“So the 75 percent is short of the tobacco farmer’s requirement, We are the biggest foreign currency earners yet we are being awarded the lowest threshold compared to other sectors that have been given about 80 to 100 percent retention.

“We will continue to engage the authorities in this regard through the Tobacco Industry and Marketing Board and the Ministry of Lands, Agriculture, Fisheries, Water and Rural Development,” he said.

Mr Ambrose said the marketing season would probably start late because of the late onset of rains as some of the tobacco crop was still in the fields and not ready for reaping.

“It is still growing, so we only anticipate the marketing season to commence late April when the bulk of the crop will be ready,” he said.

The upwards review of the foreign currency retention level is in line with the thrust enshrined in the Monetary Policy Statement that the current inflationary pressures within the national economy requires the bank to further tighten monetary policy to stem exchange rate volatility and anchor inflation expectations, whilst at the same time safeguarding the on-going recovery of the economy.

Preparations for this year’s tobacco marketing season have already started while the pre-planting producer price for the 2022 cotton marketing season has been set at over $111 a kilogramme for the crop not funded by the Government.
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Dr Mangudya also increased the export retention threshold on the incremental portion of export earnings for manufacturing, horticulture and cross border transport sub-sectors to 100 percent due to the nature of their high import requirements.

Previously the three sub-sectors of the economy had an export retention threshold of 80 percent. The 100 percent provision kicks in on all the amount of money over and above receipts for the previous year.

“On account of the high import requirements embedded in the manufacturing, horticulture and cross-border transport sub-sectors of the economy, with immediate effect, exporters in the manufacturing, horticulture and cross-border transport subsectors shall be eligible to retain 100 percent of the incremental portion of their export receipts,” Dr Mangudya said.

Confederation of Zimbabwe Industries president Mr Kurai Matshezha said while he had not yet read the full statement; the review was a welcome development.

CZI, an industrial representative body, had in many instances called for an upward review of the forex exporters can retain in order to meet the costs associated with export market development and retention overheads. Most industrialists are net importers who are encouraged to expand exports through the retention scheme allowing them to source some of their needed foreign currency themselves.

Dr Mangudya also made an upward review of the export retention level for the tourism and hospitality industry in order to respond to the adverse effects of Covid-19 on the tourism sector.

“ . . . the sector which was hard-hit by the pandemic not only in Zimbabwe but the world over, with immediate effect, players in the tourism and hospitality industry shall retain 100 percent of their foreign currency earnings to allow them to quickly recapitalise and procure the necessary goods and services required by tourists and travellers,” said the Governor.

Tourism Business Council of Zimbabwe chief executive Paul Matamisa said the revised threshold was what the industry had been asking for all along, adding this would allow the sector players to re-invest and upgrade their businesses.

“This will ensure that the businesses are at the same level as regional peers because we have been lagging behind in terms of the necessities of the industry such as refurbishments,” he said.
He said the players would now be able to secure funding for retooling, especially the hospitality side, which has been heavily depleted in terms of resources to upgrade.

Mr Matamisa said the sector was among the biggest casualties of the Covid-19 pandemic, but the sector has now started to rebuild and given the new retention threshold by the RBZ, this gives life to the industry.-The Herald